Data center REIT CEO Andy Power: Real estate not oversupplied
A version of this article first appeared in the CNBC Property Play newsletter with Diana Olick. Property Play covers new and emerging opportunities for real estate investors, from individuals to venture capitalists, private equity funds, family offices, institutional investors and large public companies. become a member to receive future editions straight to your inbox.
Just the way hyperscalers like it Nvidia, Amazon, Google And Meta The cries for bubbles are growing as more and more data center projects are announced. Some say the industry is already overdeveloped for a market that is still in its infancy and has many unknowns ahead. There are also concerns that the financing of some of these projects is risky.
Andy Power, CEO of Digital Realty, the world’s second largest data center REIT, says the opposite.
Power, who has been working at the company for 25 years, said he is not worried about the excess construction in the sector.
“Based on real demand from real customers with real long-term, 15-year contracts, we are not in a situation of oversupply today,” he told Property Play.
The global data center industry is poised for unprecedented expansion, with capacity expected to nearly double from 103 gigawatts to 200 gigawatts by 2030, according to JLL’s new outlook. This is, of course, driven by artificial intelligence, which JLL says is rapidly reshaping the data center environment. The real estate research firm predicts that AI workloads will represent half of all data center capacity by 2030. He also says “property metrics do not point to a bubble.”
In fact, JLL estimates that industry growth will require up to $3 trillion in total investment over the next five years; This includes $1.2 trillion in real estate asset value creation and approximately $870 billion in new debt financing. The report calls this the infrastructure supercycle.
“We are witnessing the most significant transformation in data center infrastructure since the first cloud migration,” said Matt Landek, global division president of data centers and critical environments at JLL. “The magnitude of demand is extraordinary. As hyperscalers allocate $1 trillion in data center spending between 2024 and 2026 alone, supply constraints and four-year grid connection delays are creating a perfect storm that is fundamentally reshaping our approach to development, energy supply, and market strategy.”
JLL predicts that AI workloads could represent half of all data center capacity by 2030, up from around 25% in 2025.
The Power of Digital Realty view is more fundamental. He says the industry is built on long-term technology trends such as cloud computing and digital transformation.
“Will there be ups and downs along the way? I’m sure there will be,” Power said. “But these are trillion-dollar companies with real cash flow and businesses that are investing in that innovation. And the way we’re doing that, particularly in digital and data centers, we’re really trying to do that with long-term resilience that will insulate us and help meet the needs of everyone in that region.”
Power also said the real estate side of the AI arms race is less at risk than hyperscalers.
“I see tremendous insulation in our strategy, in the bricks and sticks and physical infrastructure that we invest in, against any kind of shock. We’re essentially in a place where demand is outstripping supply, so the speculative data center is being built, you can’t build it fast enough for customers,” Power said, adding that vacancies at Digital Realty are the tightest they’ve ever been.
As with all real estate, Power also drew attention to location. Digital Realty is investing in areas where workloads require data, such as Northern Virginia; Chicago; Dallas; and even Singapore, Tokyo, Frankfurt, Germany and London are “close to eyeballs, consumption and devices”, he said.
But on the financing side, Starwood Capital Group Chairman Barry Sternlicht and others have expressed concerns.
“What we’re monitoring now is the tenant’s creditworthiness and, in particular, Seerbecause Oracle makes all these agreements based on Chat[GPT]”And Chat is a startup that can’t make money and needs hundreds of billions of dollars to get to the scale it wants to be,” Sternlicht said on the “Property Play” podcast in November.
Power noted that all companies, including Oracle, have tremendous businesses outside of AI, and all (except Oracle) want to own their own real estate. As of now, they own about half of the data centers.
“They don’t believe they can move away from these leaders in the markets,” he said.
